Equity investment
needs to be recalibrated to support the long-term interests of
companies and underlying beneficiaries such as pension fund
members, Business Secretary Vince Cable said today, as he launched
an independent review into UK equity markets.
In a speech at the Association of British Insurers the Business
Secretary laid down a challenge to investors, shareholders, the
boards of UK listed companies and regulators to better serve the
long-term interests of British businesses, investors and the economy.
The Review will be led by respected economic commentator
Professor John Kay with the support of an expert panel. Professor
Kay will examine investment in UK equity markets and its impact on
the long-term performance and governance of UK quoted companies.
He will examine the way that the investment chain currently works
– from company boards, through pension funds, advisers and fund
managers, to ultimate beneficiaries. He will also consider what is
needed to make sure that the UK can be the home to successful
companies, with access to the capital they need to deliver
reasonable returns.
Business Secretary Vince Cable said,
“It is especially urgent that we work out how the equity
investment regime can be recalibrated to support the long-term
interests of companies as well as underlying beneficiaries, such
as pension fund members.
“I am very pleased that Professor John Kay has agreed to conduct
a review into the UK equity market. He brings a wealth of
expertise to the task.
“He will look at behaviour right along the investment chain –
from company boards, through pension funds, advisers and fund
managers, to ultimate beneficiaries. And he will consider what is
needed to make sure that the UK can be the home to successful
companies, with access to the capital they need to deliver
reasonable returns.”
Professor John Kay said,
"Equity markets are a principal mechanism of control and
accountability for Boards and senior managers, and a means by
which individuals and households provide for retirement and other
long term financial goals.
"The Review will examine how these capital market
disciplines contribute to the achievement of such goals and to the
community more generally by enhancing the competitiveness and long
term performance of British business.
"I believe this is probably the most important issue in
industrial policy today and am pleased to have the opportunity to
assess the evidence and make recommendations to Government."
The Review will look at the whole investor chain and examine the
role of all the players – pension funds, pension advisers and fund
managers. It will examine:
how best to make sure that timescales over which investment
risks and rewards are considered best matches the interests of
clients, beneficiaries and companies; ways to strengthen the
engagement between institutional investors and companies; the most
effective ways of boosting transparency for clients, beneficiaries
and companies themselves; the legal duties and responsibilities of
asset ownership in the UK; andthe impact of increasingly
fragmented share ownership.
The Business Secretary wants to see real progress being made on
these issues so a report will be delivered to government in 2012.
Another area where the Business Secretary wants to see progress
is in bringing excessive, unjustified pay under control. Next
month BIS will be launching a consultation on changes to company
reporting that will propose tougher provisions on disclosure of
executive pay and its link to company performance.
The Business Secretary will also be holding talks with relevant
parties and remuneration committee chairs in the next few weeks to
explore various policy options, with a view to announcing further
action in the autumn.
Notes to Editors
The review follows on from the call for evidence ‘A long-term
focus for corporate Britain’ launched in October 2010, a
comprehensive review of corporate governance and economic
short-termism in the UK. A summary of responses was published in
March 2011 and the Government will bring forward firm proposals
following the consultation later this year.
To view the terms of reference of the independent review of the
investment in the UK equity markets go to
http://www.bis.gov.uk/assets/biscore/business-law/docs/k/11-1015-kay-review-terms-of-reference.pdf
To view a full text of the Secretary of State for Business’s
speech at the Association of British Insures on 22 June 2011 go to
www.bis.gov.uk
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